Market Analysis: Dec 17, 2004

posted on December 17, 2004

Strong long-term demand is keeping traders in the grain pits optimistic, though the funds still hold short positions. For the week, nearby wheat futures gained almost eight cents. March corn advanced by more than three cents.

In soybeans, basis and futures both strengthened enough to attract some farmer selling. For the week, January beans gained nearly 16 cents. The nearby meal contract, though, lost 60 cents a ton.

Chinese demand moved the cotton market a little higher. For the week March cotton gained $1.82.

In livestock, USDA released its December inventory Friday and we'll have more on that in a moment. In the pits, the December live cattle contract jumped $2.85. Nearby feeders improved $1.68. And the February lean hog contract advanced $2.25.

In the financials, Comex gold gained $7.70 an ounce. The Euro reversed itself and for the week moved up 61 basis points against the dollar. And the CRB Index recovered last week's losses and gained nine points to close at 285.25.

Here now to lend us his insight on these and other market trends is one of our senior market analysts, John Roach. Welcome back.

Roach: THANKS, MARK.

Pearson: WELL, LET'S TALK ABOUT THIS CORN MARKET FIRST. WHAT WOULD YOU TELL PRODUCERS RIGHT NOW? A LOT OF PEOPLE ARE FOCUSED ON TAKING THE LDP. A LOT OF PEOPLE THINK THE HARVEST LOW IS IN ON CORN. THEY'RE ALSO THINKING THAT NEXT YEAR WE COULD SEE MORE CORN ACRES. WE TALKED EARLIER IN THE SHOW ABOUT ASIAN RUST. THERE'S A LOT OF FACTORS OUT THERE FOR PRODUCERS TO WEIGH. WHAT ARE YOU TELLING THEM THESE DAYS?

Roach: WELL, THE CORN MARKET I THINK MADE THE HARVEST LOW. IF YOU LOOK AT THE CASH MARKET, THE BOTTOM OF THAT MARKET WAS SEEN SOME WEEKS AGO, AND THE MARKET HAS BEEN SLOWLY CRAWLING ITS WAY HIGHER. COMMODITY FUNDS IN CHICAGO HAVE BEEN PRESSING ON THE MARKET AND HOLD A NEAR-RECORD SHORT POSITION OF ALMOST 100,000 CONTRACTS SHORT. AND OUR ATTITUDE IS THAT THE BIGGEST MOVEMENT OF CORN WAS SEEN DURING THE MONTHS OF SEPTEMBER, OCTOBER, AND NOVEMBER. REMEMBER, U.S. FARMERS HAD A RECORD CROP. THEY KNEW IT AS SOON AS THEY WENT INTO THE FIELD. AND AS THEY LOOKED AT THEIR OWN FARM OPERATION AND THEY SAW THE YIELD MONITORS ON THE COMBINES, THEY KNEW REAL QUICK THAT THEY DIDN'T HAVE ENOUGH STORAGE SPACE. SO FARMERS BEGAN SELLING EARLY AND EARNESTLY IN ORDER TO MAKE ROOM FOR THE GRAIN. THERE WAS NEARBY PREMIUMS AT THE VERY BEGINNING PART OF HARVEST. IN ADDITION TO THE FARMER SELLING, WE PILED CORN ON THE GROUND, AND THE ELEVATORS SOLD AGGRESSIVELY TO MOVE AS MUCH OF THAT CORN INTO THE SYSTEM RATHER THAN LEAVE IT PILE ON THE GROUND AND CONTINUE TO DO SO, AND THE COMMODITY FUNDS SOLD AGGRESSIVELY. SO WE REALLY HAD ALL SECTORS SELLING AS AGGRESSIVELY, I THINK, MAYBE AS WE EVER HAVE SEEN DURING THE MONTHS OF SEPTEMBER, OCTOBER, AND NOVEMBER. AND I THINK THAT HAS NOW PASSED. I THINK NOW WE'RE INTO THE TIME FRAME WHEN WE STILL HAVE TO CLEAN UP PILES ON THE GROUND. BUT FROM THE STANDPOINT OF HEAVY FARMER MOVEMENT, I THINK THE FARMER MOVEMENT IS GOING TO BE VERY, VERY SLOW UNTIL WE GET THIS MARKET UP ABOVE LOAN VALUES.

Pearson: ALL RIGHT. PRODUCERS OUT THERE ARE LOOKING AT THE 2004 CROP, WHICH WAS HUGE, AND THEY'RE LOOKING AHEAD TOWARDS 2005. AND YOU CAN KIND OF SEE EXACTLY WHERE THIS MARKET HAS BEEN THE LAST COUPLE OF MONTHS, WHICH HAS BEEN RELATIVELY FLAT. LIKE I SAY, HOPEFULLY THE MARKET LOW IS IN. BUT AS YOU LOOK FORWARD, AS YOU GO DOWN THE ROAD AND LOOK AT GETTING 2005 CROP SOLD, WHAT ARE YOUR THOUGHTS THERE, JOHN? WE SEE DECEMBER CORN '05 AROUND THE MID $2.30s. SHOULD WE START THINKING ABOUT LOOKING AT THAT ONE?

Roach:, YOU KNOW, THE THING THAT SERVES ME WELL IN THIS BUSINESS IS TO HAVE SOME RULES THAT I JUST TRY NOT TO VIOLATE. AND IF I CAN COMPARE IT TO A FOOTBALL GAME: YOU JUST DON'T PUNT ON FIRST DOWN. CERTAINLY YOU MAY SEEM LIKE YOU HAVE A BIG OBSTACLE TO OVERCOME, BUT YOU STILL PLAY ALL THE DOWNS AND ONLY PUNT WHEN YOU HAVE TO. WE DON'T SELL CORN IN DECEMBER. DECEMBER IS THE SECOND LOW -- WELL, NOVEMBER AND DECEMBER ARE TIED FOR THE LOWEST PRICE OF THE YEAR, IF YOU GO BACK AND LOOK AT TEN YEARS' WORTH OF HISTORY IN THE CASH MARKET. WE LIKE TO MAKE SALES IN MARCH, APRIL, MAY, AND JUNE. SO MAKING ANY SALES NOW FOR NEW CROP DELIVERY, I THINK THERE'S A LOT OF THINGS TO HAPPEN BETWEEN NOW AND THEN. AND I THINK AT THE MOMENT, WE'RE LOOKING AT A LOT OF THE WORST THINGS. WE'RE NOT LOOKING AT THE REALITY, WHICH IS WE MUST RAISE A VERY BIG CORN CROP NEXT YEAR TO SUPPLY THE LEVEL OF DEMAND THAT WE'RE CREATING OUT THERE IN THE LIVESTOCK INDUSTRY AND IN THE ETHANOL INDUSTRY AND IN THE EXPORT INDUSTRY.

Pearson: SO AT THIS STAGE OF THE GAME IN THE CORN MARKET, YOU'D SAY STAY PUT.

Roach: I'D SAY STAY PUT. I'D SAY STAY PUT ON OLD-CROP INVENTORY. I'D BE WILLING TO TAKE THE LDP AND TAKE A CHANCE. THE LDP HAS NARROWED BUT I THINK BEFORE WE'RE DONE, THE LDP WILL BE GONE. I WOULD BE VERY WILLING TO TAKE A CHANCE ON NEXT YEAR'S CORN. I WOULDN'T BE WILLING TO SELL ANY CORN AHEAD AT THIS PRICE LEVEL. I'D JUST BE PATIENT. I THINK WE'VE JUST GONE THROUGH THE BIGGEST SUPPLY PERIOD, AND WE'VE YET REALLY TO RUN INTO THE BIGGEST DEMAND PERIOD, WHICH COMES WHEN ALL THE COUNTRIES IN THE NORTHERN HEMISPHERE HAVE CONSUMED THEIR OWN DOMESTICALLY RAISED CORN. AND NOW HAVE TO GO TO THE WORLD MARKET TO START TO SECURE THEIR INVENTORY.

Pearson: ALL RIGHT. LET'S TALK ABOUT SOYBEANS, JOHN. AGAIN, THE SCENARIO THERE IS -- WE MENTIONED THE SOYBEAN RUST EARLIER IN THE PROGRAM, AND AGAIN, WE SEEM TO HAVE HIT THAT HARVEST LOW BACK IN NOVEMBER. WE'VE COME UP A LITTLE BIT. THERE'S BEEN SOME SHORT COVERING. SHOULD WE BE SELLING BEANS?

Roach: I THINK WE SHOULD BE SELLING BEANS. WE'RE ACTUALLY GETTING OR JUST RIGHT ON THE EDGE OF GETTING A SELL SIGNAL IN SOYBEANS. SO FAR, FOR THE LAST TWELVE MONTHS, EVERY SELL SIGNAL HAS BEEN FOLLOWED BY A FAIRLY SIGNIFICANT DECLINE IN PRICE. WE NORMALLY WILL GET FOUR TO SIX DAYS ON A SELL SIGNAL. WE HAD SIX DAYS OF A SELL SIGNAL IN NOVEMBER, FOLLOWED BY A SHARP BREAK IN THE MARKET. WE WOULD THINK THERE'S REASON TO SEE THAT SIMILAR BREAK IN THE MARKET. A LOT OF FARMERS HAVE BEEN JUST ITCHING TO SELL SOME SOYBEANS, AND THEY'VE BEEN WAITING UNTIL THE PRICE KIND OF GOT TO THEIR LEVEL. AND WE STARTED TO SEE THAT PICK UP THIS WEEK. SOME OF THE INTERIOR PROCESSOR BIDS, THE BASIS VALUES WEAKENED A BIT. THE GULF BIDS ARE STILL VERY HIGH GOING HOME THIS AFTERNOON, EVEN WITH THE STRONG FINISH IN THE BEAN MARKET. SO THE MARKET IS STRONG.

I WAS ON THE FLOOR OF THE BOARD OF TRADE YESTERDAY MORNING FOR THE OPENING, AND PEOPLE THERE THINK, HOWEVER, IT IS JUST A MATTER OF TIME BEFORE THIS BEAN MARKET SUCCUMBS TO THE BIG SURPLUS SITUATION THAT'S GOING TO BE CREATED WITH THE SOUTH AMERICAN HARVEST. WE'RE TALKING ABOUT THE BIGGEST CROP EVER DOWN THERE. AND I KNOW EVERYBODY IS WORRIED ABOUT RUST. HOWEVER, THE FORECAST FOR A 40- OR 41-BUSHEL-AN-ACRE AVERAGE YIELD IN SOUTH AMERICA WHERE THEY'VE BEEN DEALING WITH RUST FOR SOME TIME NOW, I THINK THAT THE RUST WORRY IS GOING TO BE AROUND. WE'RE GOING TO BE TALKING ABOUT IT. IT MAY, IN FACT, CHANGE ACREAGE. WE'LL SEE MORE ABOUT THAT IN JANUARY WHEN WE SEE SOME PRIVATE ESTIMATES COME OUT. BUT BY AND LARGE, IF I WERE A PRODUCER, I WOULD JUST, FROM A MARKETING STANDPOINT, I WOULD IGNORE RUST FOR A LITTLE BIT. UNDERSTAND THAT IT'S CAUSING THE MARKET TO MOVE A LITTLE. USE THAT AS AN OPPORTUNITY TO MAKE YOUR SALES. DON'T RUSH OUT TO MAKE SALES ON NEW CROP BEANS. I DON'T THINK THAT MAKES ANY SENSE EITHER. BUT FOR THE MOST PART, DON'T LET THAT KEEP YOU FROM DOING GOOD BUSINESS ON THE FARM.

Pearson: OKAY. SO MAYBE LET LOOSE OF SOME SOYBEANS, AND MAYBE LET LOOSE OF THOSE BEANS BEFORE WE START TO SEE THAT SOUTH AMERICAN CROP START TO HIT THIS MARKET.

Roach: MARK, I THINK PRODUCERS NEED TO BE PREPARED TO SELL ALL THEIR BEANS HERE OVER THE RELATIVE SHORT-TERM. I THINK AS THE SOUTH AMERICAN CROP BECOMES MADE, WHICH TYPICALLY HAPPENS IN JANUARY, THE SOUTH AMERICANS ARE GOING TO START TO MOVE SOME OF THEIR INVENTORY ON ANY LITTLE BIT OF PRICE STRENGTH. AND IN FACT, AS THEY MOVE INTO THEIR HARVEST, THEY MAY WELL HAVE TO MOVE ON PRICE WEAKNESS. AS I SAID, ON THE BOARD OF TRADE, PEOPLE ARE FULLY EXPECTING THE BEANS TO HAVE A FOUR IN FRONT OF THEM BY THE TIME WE GET INTO SPRING. SO THIS IS A GAME OF HOT POTATO/HOT POTATO HERE. DON'T GET CAUGHT HOLDING BEAN INVENTORIES INTO THE BIGGEST HARVEST THE WORLD HAS EVER SEEN.

Pearson: LET'S TALK ABOUT WHEAT. AND NOT THE BIGGEST HARVEST EVER THIS LAST YEAR. WHEAT ACTUALLY HAS SHOWED A LITTLE STRENGTH THIS WEEK, AT LEAST THE CHICAGO SOFT RED WHEAT. FILL US IN ON WHAT'S HAPPENING IN THIS WHEAT PICTURE. WE'VE HAD A PRETTY GOOD BREAK THERE REALLY FOR THE MONTH OF DECEMBER. WE'VE SEEN A LITTLE BIT OF RECOVERY THIS WEEK. WHAT'S AHEAD FOR WHEAT?

Roach: WELL, THE WHEAT MARKET CAME UNDER A LOT OF PRESSURE AS WE SAW THE CONDITIONS FOR THE NEWLY PLANTED WINTER CROP BEING REPORTED AS THE BEST EVER, OUR BEST IN RECENT TIMES -- MODERN HISTORY ANYWAY. THE NEW CROP LOOKED FANTASTIC. AND EVERY WEEK WHEN WE GOT A POSITIVE REPORT, WE SAW THE WHEAT JUST SINK A LITTLE FURTHER. IT WAS HELPED BY HEAVY COMMODITY FUND SELLING, PARTICULARLY IN CHICAGO WHERE THE FUNDS ARE MUCH MORE DOMINANT THAN THE OTHER MARKETS. CHICAGO MARKETS HAVE BEEN ESPECIALLY WEAK BECAUSE OF THE POOR QUALITY OF WHEAT THAT'S THERE IN A DELIVERABLE POSITION THAT KEEPS -- IT JUST HANGS AROUND THE MARKET LIKE A MILLSTONE OR SOMETHING. NOBODY WANTS IT. IT'S GOING TO KEEP COMING BACK OUT FOR DELIVERY, AND SO IT JUST REALLY HURTS THE MARKET. HOWEVER, WITH THE COLD WEATHER BEING FORECAST THIS WEEKEND, THAT'S CHANGED SOME PEOPLE'S ATTITUDES. NOW WE HAVE A CHANCE MAYBE TO HURT THE WHEAT CROP A LITTLE BIT, AND SO THAT'S GOT PEOPLE LOOKING AT IT A LITTLE DIFFERENTLY. WE SAW SOME FUND SHORT-COVERING TODAY. IT CAUSED THE MARKET, PARTICULARLY CHICAGO, TO MOVE HIGHER. WE ACTUALLY MADE SOME POSITIVE TRADES THERE ON THE CHART. THAT MAY GIVE US SOME MORE TECHNICAL BUYING FROM THE COMMODITY FUNDS. WE'RE IN HOPE THAT WE CAN GET SOME PRICE RECOVERY HERE, AND WE'D LIKE TO SELL INTO THAT STRENGTH. TRADITIONALLY, THIS IS A GOOD TIME OF YEAR TO BE SELLING WHEAT AND TO BE CONTRACTING NEW CROP WHEAT. SO ON OUR NEXT ROUND OF SELL SIGNALS, WE WANT TO BE THERE AS A SELLER IN THE WHEAT MARKET. MEANWHILE, THE DEMAND HAS ACTUALLY BEEN BETTER OVERSEAS THAN WAS EXPECTED EARLY. IN THE LAST REPORT, THE GOVERNMENT INCREASED THE EXPORT FORECAST, TIGHTENED THE CARRYOVER SLIGHTLY. SO THE WHEAT STATISTICS ARE NOT REALLY GETTING WORSE; IT'S JUST THAT THE NEW CROP IS LOOKING SO GOOD. THERE'S ALSO SOME TALK OUT THIS WEEK THAT MAYBE WE DIDN'T GET ALL THE ACREAGE PLANTED FROM ARKANSAS DOWN TO GEORGIA BECAUSE OF THE VERY WET SPRING -- OR VERY WET FALL. SO THAT'S ANOTHER THING THAT'S STIMULATING US HERE JUST RECENTLY.

Pearson: WELL, A LITTLE BIT ON THE DEMAND SIDE FOR COTTON HELPING US OUT A LITTLE BIT THIS WEEK.

Roach: WELL, THE COTTON MARKET IS MOVING UP A LITTLE BIT, BUT IT'S GOT TOUGH RESISTANCE. AS WE GET UP INTO THIS 45-CENT AREA ON MARCH COTTON, THAT'S WHERE WE STOPPED ON OUR LAST RALLY. PEOPLE THINK WE'RE GOING TO STAY IN A TRADING RANGE OF 42 TO 45; BIG SUPPLIES OUT THERE. AND AGAIN, A CONCERN ABOUT WHAT ARE WE GOING TO PLANT, PARTICULARLY IN THOSE SOUTHERN AREAS WHEN WE'RE AFRAID OF THE SOYBEAN RUST SITUATION.

Pearson: LET'S TALK ABOUT THIS LIVESTOCK MARKET. FED-CATTLE MARKET, WE SAW A LITTLE STRENGTH FROM THE BOARD. THE CATTLE INVENTORY REPORT IS OUT. WHAT'S YOUR TAKE NOW AS WE GO FORWARD ON THE FED CATTLE?

Roach: THE CATTLE MARKET IS ON FAIRLY SOLID FOOTING. THE SUPPLY SIDE AND THE DEMAND SIDE BOTH LOOK BRIGHT AS WE LOOK ON OUT FORWARD. RECENTLY, THE NATIONAL RESTAURANT ASSOCIATION IN THEIR 2005 OUTLOOK FORECASTS THAT THE RESTAURANT SALES WOULD BE UP 4.9 PERCENT FOR 2005 AND WOULD TOTAL 4 PERCENT OF THE U.S. GDP. THESE ARE -- I THINK IT'S UP 61 PERCENT IN THE LAST TEN YEARS. SO WHAT'S HAPPENING IS WE'RE SEEING VERY STRONG DEMAND FOR MEAT AND ALL THE ITEMS THAT ARE GOING THROUGH THE RESTAURANTS. AND THAT'S FROM THE QUICK KIND OF RESTAURANTS TO THE WHITE TABLE CLOTH RESTAURANTS AND THE INSTITUTIONAL FEEDING AND SO FORTH. SO DEMAND IS VERY STRONG DOMESTICALLY. AND WITH THE ECONOMY LOOKING AS BRIGHT AS IT LOOKS, WE THINK THAT'S GOING TO BE WITH US HERE REALLY FOR AT LEAST THE NEXT SIX MONTHS OR SO. ON THE SUPPLY SIDE, THE PLACEMENT NUMBERS ON THE REPORT TODAY WERE SMALLER THAN WERE ANTICIPATED. THAT'S A POSITIVE SITUATION. IN THE MONTH OF NOVEMBER, WE HAD SEVERE CATTLE LOSSES IN THE FEEDLOT COUNTRY DOWN IN THE PLAINS AREA; SOME PEOPLE TALKING 6-PERCENT LOSSES IN THE PLAINS. CERTAINLY ALL THE OTHER CATTLE STANDING OUT THERE DID NOT GAIN. SO PRODUCERS FEEL LIKE THEY HAVE THE SUPPLY UNDER CONTROL AND THE DEMAND IS VERY SOLID. SO WE THINK THE CATTLE MARKET IS ON VERY GOOD FOOTING.

Pearson: WHAT ABOUT THE HOG MARKET? IT'S BEEN ON GOOD FOOTING WITH THIS ADDITIONAL EXPORT DEMAND THAT WE'VE SEEN. AND WE'VE SEEN THIS TREMENDOUS RUN-UP THIS FALL, REALLY SINCE JUNE ON THIS HOG MARKET. WHAT'S AHEAD NOW FOR HOGS?

Roach: HOGS AND PIGS REPORT DUE OUT HERE SHORTLY. THAT REPORT IS GOING TO SHOW WE PROBABLY HAVE ANOTHER ONE PERCENT, MAYBE A LITTLE MORE THAN THAT IN THE MARKET HOGS, MAYBE THE SAME ONE-PERCENT INCREASE IN BREEDING HERD WITH A STRONG ECONOMY IN FRONT OF US. WE THINK THE HOG BUSINESS IS GOING TO BE VERY GOOD AS WE LOOK OUT OVER THESE NEXT FEW MONTHS WITH THE RELATIVELY LOW-PRICED FEED AND STRONG HOG PRICES. SO WE'RE NOT ANXIOUS TO SELL ANYTHING HERE.

Pearson: JOHN ROACH, AS USUAL, APPRECIATE YOUR INSIGHTS. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE INFORMATION FROM MR. ROACH ON JUST WHERE THESE MARKETS ARE HEADED, THEN BE SURE TO CHECK OUT THE STREAMING AUDIO SECTION ON THE "MARKET PLUS" PAGE AT OUR "MARKET TO MARKET" WEB SITE. AND OF COURSE, BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL LEARN HOW WESTERN RANCHERS ARE CUTTING OFF CATTLE RUSTLERS AT THE PASS. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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